Soybeans
DES MOINES, Iowa — A surprising drop in the U.S. corn and soybean crop sent grain prices surging to their highest levels in 2 1/2 years Wednesday. The price increases stoked concerns about higher food prices and tighter supplies of feedstock for food and biofuels.

Wet weather and abnormally high temperatures contributed to lower U.S. corn production in 2010, according to a report from the U.S. Agriculture Department. The report also showed declines in soybean, wheat and grain sorghum production.

The report confirmed traders’ fears that historically low stockpiles of grain and oilseeds could leave little buffer in coming months as demand rises with a growing global economy. Prices reached their highest points since the financial crisis of 2008 caused a collapse in global demand for food and fuel.

“It’s just confirming that supplies are lower than we thought, and demand is better than we thought, and when that happens you see prices bidding up,” said Chad Hart, an Iowa State University grain marketing specialist.

It can take months for higher grain prices to work their way to the grocery store. Raw ingredients are just a fraction of the cost for processed foods.

But companies like Hormel Foods Corp. have already announced price increases of more than 3 percent this year. Higher grain costs will put more pressure on them to pass costs along to consumers.

U.S. corn production dropped 5 percent in 2010 to 12.4 billion bushels. Still, it remained the third-highest output on record. The record was set in 2009, when 13.2 billion bushels of corn were harvested.

At issue is the amount of grain being carried over from year to year. That surplus creates a buffer for global markets. The report shows that corn stockpiles are among the lowest levels ever recorded, at just 5 percent of the total corn used, said Hart, the Iowa State specialist.

The report shows that just 745 million bushels of corn will be stockpiled by August this year. That’s down from about 1 billion bushels in August 2010.

“That’s a significant drop,” Hart said. “Normally, we like to keep those levels above 10 percent.”

Anthony Prillaman, an analyst with the USDA’s National Agricultural Statistics Service, said weather was the key factor in the lower production.

“Everything shows that normal or above normal temperatures in August reduced the yield potential for corn,” he said. “They were above normal and stressed the crop.”

Hart said demand continues to rise, with the ethanol industry the area of fastest growth. The largest overall demand continues to come from the livestock industry.

Lower stockpiles are also evident with soybeans, wheat and cotton, Hart said.

“Things were already really thin with soybeans and have been for the past three years,” Hart said.

Soybean stock supplies are at 4 percent, down from 5 percent the previous year.

Soybean production fell just 1 percent in 2010 to 3.33 billion bushels, with average yields of 43.5 bushels per acre. Travis Thorson, a soybean analyst with the USDA, said that was down from about 3.4 billion bushels and 44 bushels per acre in 2009 and was the second-highest output on record behind 2009’s.

He said fewer soybean acres were planted in the Southern U.S. as farmers rotated crops.

Wheat production fell 1 percent to 2.21 billion bushels in 2010 but saw record yields of 46.4 bushels per acre. Grain sorghum fell 10 percent to 345 million bushels last year.

Cotton was a bright spot. Cotton production jumped 50 percent in 2010, in part because the number of acres harvested rose 42 percent, said Steve Maliszewski, a USDA analyst.

“Last year we had a lot of abandonment in Texas, about 1.5 million acres, because of severe drought in 2009,” Maliszewski said.

But he also said increased cotton prices may have contributed to more cotton acres being planted in 2010.

Minnesota and Wisconsin were two bright spots in corn production in 2010. Both states set records. Minnesota produced nearly 1.3 billion bushels of corn in 2010, with average yields of 177 bushels per acre. Wisconsin produced 502.2 million bushels, with 162 bushels per acre.

Iowa remained the top corn-producing state despite lower production of 2.15 billion bushels and 157 bushels per acre. Illinois came in second, with more than 1.9 billion bushels and 157 bushels per acre.